According to multiple reports from Korea, Hana Bank is starting to explore blockchain-based deposit tokens for payment purposes. It recently decided to expand its participation in Bank of Korea central bank digital currency (CBDC) experiments. There has been no formal confirmation of the trials.
What is unclear is whether this is for tokenized bank deposits or a token backed by CBDC deposits.
CBDC backed deposit tokens?
Press articles refer to ‘CD tokens’ and imply that the banks will issue tokenized certificates of deposit, with CBDC used as collateral. This appears to be closer to the design of stablecoins.
This model is reinforced by a recent note from Woori’s research arm that said a “CBDC-based deposit token is a tokenized asset of CBDC held by an issuing company such as a bank.” The Bank of Korea has recently massively expanded its CBDC experimentation.
The press also compares the stability of this design to stablecoins where the de-pegging of the Circle USDC stablecoin was mentioned when $3.3 billion of its collateral was locked in the collapsed Silicon Valley Bank.
Diagrams in the Korean press indicate a proof of concept between Hana Bank and Woori Bank (Korea’s second and fourth largest banks) that might execute the design described.
Commercial bank deposit tokens?
Alternatively, the same diagram could be interpreted as a project for commercial bank deposit tokens, where a trial central bank digital currency (CBDC) is used to settle between the banks.
So far, few bank deposit tokens in production, so each project has significant differences. As Hana has not formally released information about its work, the precise design is not entirely clear based on press reports.
One typical concept is for banks to issue tokens based on user bank deposits. If a client of one bank (say Hana) sends the tokens to the customer of the second bank (Woori) as payment, the recipient will often prefer to have tokens of its own bank (Woori), but it received Hana tokens. Hence, in contrast to stablecoins, there might be a settlement layer between banks to enable the recipient to swap the Hana tokens it received for Woori tokens. That requires the one bank to pay the other bank, which could happen using a CBDC.
This model also seems to be supported by one of the banker quotes in an article from MK: “CD tokens feel stable from the point of view of banks in that they do not change much from the current system.”
Meanwhile, deposit tokens are getting more and more attention. Ten institutions recently participated in a Regulated Liability Network trial that included the New York Federal Reserve, Citi, HSBC, Wells Fargo and Mastercard. The latter recently launched its Multi Token Network for tokenized deposits.
